The Independent Investor: How Prepared Are You to Sell Your Company?
If you are a small-business owner and are toying with the idea of someday selling your company, you should pay attention. Only one in five small businesses put up for sale result in a closing. How do you become one of those success stories?
Where I live and work, nestled in the Berkshire Mountains of Massachusetts, there are relatively few large companies. We are over-populated with "Mom and Pop businesses." As such, I meet and talk to plenty of these enterprise owners daily. An overwhelming number of these entrepreneurs have saved little or nothing towards their retirement.
Instead, they believe that at some point, someone would swoop in and buy their business, guaranteeing a financially secure retirement. Despite taking a hardline approach to the realities of running a business, most owners do not have a realistic sense of how to sell a business. The two are completely different animals.
I recently got an education in the difference by reading a book written by Allen P. Harris (owner of Berkshire Money Management where the columnist works) titled "Built It, Sell It, Profit." It's a slim book, well-written in layman's terms, which I suggest you pick up. In it, Harris addresses the big questions that need to be answered if you have even a hope and a prayer of selling your business.
The first question to ask is "What should I be doing today to build my business toward "maximum value?"
Harris would tell you that you will need to begin planning that sale for at least three to five years ahead of time. The things that you overlook in your day-to-day running of the business won't be overlooked by a potential buyer. Think of it in the same way you would approach getting in shape at the gym. You need a plan, and to figure out how the machines work and which ones to use.
In your firm, you will need to start documenting your workflows, your business procedures, hire the employees that will be needed, and in general, clean up your act before showing your business to any potential buyers.
"Think big," says Harris, "Strategic planning is a process of setting bold, long-range goals and then working backward to determine the steps needed to get there."
Another important question to ask is what your business is worth? You may know how much money you put into it, how much that new roof cost, or that line of trucks outside on the newly-paved blacktop but how much will a potential buyer be willing to pay for all that? Not to mention putting a value on the blood, sweat and tears you have invested in it over the years.
Most businesses need an independent valuation by an expert who can compare your firm to others in the same business. That's going to cost you and more than likely you won't take kindly to the answers. Unfortunately, most owners think their business is worth far more than it is.
The burning question I hear more than any other, is "If I were to decide to sell my business, would I get enough money so that I would be able to maintain my lifestyle and take the next step in life?" We will discuss that answer, as well as raise several other issues you might want to consider.
|Write a comment - 0 Comments|
@theMarket: Record Highs Coming Up?
As of Friday, we were in striking distance of a record high on the S&P 500 index. We have been here before, but something tells me that this time we just may break through. But for how long?
Granted, stock market volumes are exceptionally light, which is understandable, since we are heading in to one of the slowest weeks of the year. That makes any new highs suspect until volume improves. We would need to wait another week or so for that to occur. Next weekend is Labor Day and it is only after the holiday that the Big Boys get back into town.
What those players will do, once they are back in the cockpit, will determine the short-term direction of the market through September and into the end of October. There will not be a lot of upside catalysts to drive stocks higher during that period. But there are several issues that could pressure the downside.
Readers are already aware of the major risks: tariffs, higher interest rates, unpredictable tweets from the White House, etc. Some investors, as I mentioned last week, have already positioned themselves for an uptick in volatility by buying some of the more defensive sectors of the stock market.
We have also noticed that certain economic data points have failed to live up to the market's high expectations. That does not mean that growth has slowed. It just means that we may be reaching a bit too high right now for the numbers.
Even the Federal Reserve Bank's latest minutes reveal some concerns. Fed members are watching the developing tariff issue closely. Yet, they do not see any reason to stop hiking interest rates, but they are watching. Most central bank experts expect two more interest rate hikes this year (one next month and a second in December). Those expectations are already priced into the markets.
In an address to the annual Jackson Hole symposium of central bankers on Friday, Fed Chief Jerome Powell assured us that the economy is strong and that its performance will continue. Inflation is under control and he sees no signs of overheating.
Powell said that the Fed's gradual interest rate tightening policies will continue. He ignored the recent comments by the president, who has complained recently over the Fed's tightening policy, but Powell did say he was concerned by the government's burgeoning deficit,
the slow rate of wage gains, and the disappointing productivity among the nation's corporations. The Fed can do nothing about any of the above, however. Those are issues that Congress and the president must address.
Markets rightfully interpreted his comments as "dovish," at least on the margin. As such, readers should not expect a bear market anytime soon. At the worst, we could see more volatility over the next few weeks and months (both up and down). And while the earnings season is over for now (79 percent of companies "beat" profit estimates, while 72 percent beat revenues), analysts are already upping their forecast for profits and sales for next quarter.
As we head into the last days of the summer, I expect nothing negative to spoil your vacations. As for me, I want to advise readers that next week will be my last column until mid-September, when I return from a two-week vacation in Norway.
|Write a comment - 0 Comments|
The Independent Investor: Should You Bury Yourself?
In today's world, the idea that you should prepay, or at least set aside some money to cover your funeral expenses is gaining traction. Given the escalating costs of paying for a loved one's funeral, it is no surprise.
Most of us don't want to face it, let alone discuss it. In some quarters, it is "bad mojo" to consider planning for your death, so pardon me for bringing up such a squeamish (some might say ghoulish) subject. But as your fiduciary in all things financial, I feel obligated to discuss prepaid funeral expenses.
This year, I was introduced to this concept when my Mom died. She was 93 years old, bless her soul, and had a good life. Independent to the end, she secretly arranged for her own funeral expenses in 2000 along with specific instructions on what should happen at her passing. She wanted no fuss, no bother. Her remains were cremated, and everything was signed, sealed and delivered before I could make the five-hour trip to her home in Pennsylvania.
My mother turned out to be an astute investor when it came to her death. Funeral expenses during that time (2000-2018) increased by 75.74 percent, according to the U.S. Bureau of Labor Statistics. Her arrangement to prepay her expenses protected her from rising costs and provided a convenient and stress-free experience for me and the rest of the family.
However, there are pros and cons of pre-paying for your funeral. A prepaid funeral plan is an arrangement between you and a funeral home in which you make an upfront payment to the funeral home today. The agreement should state that the funeral home will administer funeral services in the future in return and cover all the costs. These funeral costs usually run somewhere between $10,000-$15,000 for basic services. They usually do not pay for cash expenses such as fees charged by the clergy or other services.
If you go this route, make sure the services and costs you specify are guaranteed in the contract. Watch out for terms such as additional payments for "final expense funding." It usually means that your beneficiaries will be required to pay any cost overruns.
There are other risks you take as well. For example, the funeral home may go out of business. What happens to your contract at that point? Have arrangements been made for another entity to take over your contract? What happens if you decide to move for example? Can your plan be transferred to another funeral home in a different state? Can you get your money back if you change your mind? Make sure that all of these "what ifs" are spelled out.
Some experts argue that there are better ways to pay ahead for your funeral. You could buy a life insurance policy with the proceeds earmarked for funeral expenses. Some suggest that you could also set up your own burial trust fund. It's called a "Totten trust" and is simply a regular bank account with a designated "pay on death" inheritor.
In this case, you open the account at your local bank or credit union. The money earns interest, you can close it at any time if you want, and could transfer the balance to a different bank if you want. When you die, the beneficiary collects the account balance and pays for the funeral.
Granted, prepaying your expenses via a funeral home is convenient and can insulate your costs from inflation if it is done right. Ask your financial planner what she thinks at your next meeting. It could not only provide you peace of mind but could also be a great gift to your beneficiaries.
|Write a comment - 0 Comments|
The Independent Investor: Turmoil in Turkey
Turkey, a country that represents about 1 percent of the world's gross domestic product, has suddenly become a cause of concern for investors worldwide. Both developed and emerging financial markets have plunged over the last week as that country's currency plummeted. Fear that this tiny country's problems could somehow spark a global financial contagion has everyone on edge.
Those fears are unfounded. There will be no "contagion." What is happening in Turkey is truly a "Tempest in a Teapot" that bears little resemblance to the crisis in Greece several years ago. Yet, over the last week, Turkey's currency, the lira, fell to record lows, interest rates skyrocketed, and their stock market cratered.
Turkey's problems are nothing new. It is a classic case of a country that borrows abroad (in U.S. dollars) to leverage their economy's growth rate, which make the voters happy — until it doesn't. Investors have erroneously compared Turkey's woes to the Greek crisis of a few years ago. But there are big differences.
Turkey's economy is about 1 percent of global GDP, the 17th largest in the world. The country is not a full member of the European Union, nor does it use the Euro as its national currency. In addition, European banks have relatively little exposure to Turkish debt. Unlike Greece, where all the above were real fear factors, Turkey is more of a "corporate debt problem."
It has been companies, and not the government, that have gone on a borrowing spree. And foreign investors, searching for better returns that can be had in safer, more developed markets, were glad to loan Turkish companies' money for a double-digit return. Turkey is not alone in this trend; many other emerging markets have also been able to tap the debt markets in recent years.
The problem in this scheme is that the U.S. dollar has been strengthening all year. Projections are that it is likely to continue to gain against other emerging market currencies. Since Turkey's debt is priced in dollars, every tick up in the greenback makes their debt payments that much higher. At some point, that situation becomes untenable. Debt default could become a real possibility in that case.
And what could happen to Turkey, might also happen to other countries, such as Italy. A crisis in Italy would be a whole new ballgame, similar, but worse, than what happened to Greece. The "Italian Problem" has also been simmering for years, so it is understandable that investors would jump to conclusions prematurely.
And during this tempest, President Trump brought the kettle to boil by doubling tariffs on imported Turkish steel and aluminum in response to Turkey's imprisonment of an American citizen. Although Turkey only sells $1.4 billion of these metals to the U.S., it is the thought that counts. Down went the lira (again), which has now declined 40 percent since the beginning of the years. Their stock market (which is about the size of the market capitalization of McDonald's) plummeted. Interest rates spiked (now 17 percent), while the inflation rate is expected to go higher than its present 17 percent.
While there is little positive news that one can point to in terms of this country's economic prospect over the short term, their situation is purely "Turkish" in nature. There is no need to put down that novel or call your broker from the beach. As I have warned my readers over the past few weeks, manufactured crises that are then blown out of proportion are how traders whittle away the slow days of August. Don't get caught up in the hysteria.
|Write a comment - 1 Comments|
@theMarket: Will Stocks Break Out or Break Down?
The S&P 500 index is within a hair's breadth of breaking out. This week we topped 2,850, which we haven't done since March. The record high for the index in January was 2,872.
Can we top that?
The S&P 500 Index traded within 0.5 percent of its record high this week. If we can close and hold a new high, it will be the 18th time the benchmark index has closed at a new all-time high after going six months without one. Statistically speaking, the odds of doing so are against us. Normally, if we use historical data, it should take the index another year before we reach a new high, but there is nothing normal about the environment we live in today.
Last week, I wrote that the market was locked in a trading range. The up and down action, I said, could continue through September and into October. At that point, I was expecting another move higher. I may have been too conservative, but the proof will be in what happens next.
We have been climbing for several consecutive days from a low of about 2,800 to the present level. NASDAQ and the FANG stocks have regained all their losses, while the overall market has risen on the back of positive second-quarter earnings results. What's more important is that overall guidance by corporations was bullish as well.
Technically, if markets are going to continue in this trading range, we should see a pullback soon. The key would be what level the bulls are willing to defend on the way down.
The 2,850 level on the S&P 500 would seem the obvious place to find some support. If not, well, chances are we go back to the recent trading range lows.
The absence of new news, now that earnings season is over, could also weigh on the bulls. And don't forget Washington. At any moment, a tweet from the White House could spoil investors' hopeful moods.
Have you noticed, however, that the tariff tantrums are affecting the market less and less?
For one thing, when you add up all the real or threatened tariffs, the impact on global growth is minuscule. Ken Fisher, an investment adviser I respect, wrote a piece for USA Today. In it, he argues that all the commentary, both pro, and con, on the tariff situation is wrong. He did the math, assuming the worst-case scenario happens. The global economy, which is worth some $80 billion a year, is estimated to grow by about $4 trillion in 2018. He calculates that if $161 billion in tariffs were levied on the world's consumers, it would only comprise a mere 4 percent of that $4 trillion in global economic growth. That's not much to get worked up about, now is it?
Patience is the keyword for 2018 when it comes to investing. Whether we break up or down in the short-term is immaterial. In the long run, let's say by the end of the year, stocks will finish the year higher.
|Write a comment - 0 Comments|